Top 10 Growth Stocks to Watch in 2023: An Expert's Insight

Intro: Unveiling the Best Growth Stocks of 2023

Take a deep dive into this meticulously crafted selection of 2023's best growth stocks, each exhibiting powerful growth characteristics with the potential to offer substantial returns in the years to come. Every stock presented here is a part of a U.S. exchange, maintains a market capitalization of $500 million or more, and demonstrates an average daily trade volume of at least half a million shares. The criteria for selection also includes the following key elements:

• Robust projected growth: Each stock is backed by an analysts’ consensus of an annual EPS growth of at least 20% over the forthcoming five years, with the upcoming year's growth projected to be positive.
• Solid historical growth patterns: These companies have proven their mettle by growing their earnings by a minimum of 20% in the previous year, with anticipated earnings for the current year surpassing the last.
• Financial stability: Each stock comes from a company boasting a Morningstar financial health rating of A, B, or C.
• Growth without share dilution: These companies have a buyback yield of at least 0% over the past year, indicating that they are not issuing new shares to fund growth, thereby avoiding shareholder dilution.

Among all the stocks that fit these stringent criteria, we present the top 10, selected for their expected earnings growth and a track record of consistently growing profits over recent years.

Understanding Growth Stocks

Growth stocks belong to publicly traded companies that are expanding their profits, revenue, or cash flow at a pace significantly surpassing their rivals and the market as a whole. They are often the choice for investors seeking to benefit from swift stock price appreciation.

Mostly, growth stocks are tied to fledgling companies that are stirring up their respective industries. They often offer distinctive services and products, continually innovate, and hold proprietary technology or intellectual property that gives them a competitive edge. These companies usually reinvest their earnings and accumulate debt to achieve rapid expansion, constantly ramping up production, acquiring businesses, and employing new talent to hasten business growth.

The Philosophy of Growth Investing

Growth investing is an investment approach that involves identifying and buying stocks based on their long-term business growth potential. Rather than focusing on a company’s current business performance or fundamental market valuation, growth investors bank on future potential.

While considered more aggressive than value investing, growth investing has historically outperformed during times of declining or low-interest rates and burgeoning corporate earnings. Growth investors often purchase stocks with high P/E or price-to-sales ratios, banking on the premise that these companies will eventually grow into and surpass their present valuations. However, it's worth noting that growth stocks often experience greater volatility than the broader market, and are likely to be sold off during periods of market uncertainty.

The Potential Perils of Growth Investing

Growth stocks often trade at high valuations as they factor in future growth expectations. Consequently, even a revenue growth that ordinarily would impress the market can disappoint growth stock investors if it doesn’t meet their high expectations, triggering a sell-off. If a growth stock shows signs of slowing or stagnating growth, investors may exit en masse, leading to a sharp decline in the stock price.

Furthermore, growth stocks are particularly susceptible to rising interest rates. Discounted cash flow models used by fund managers to value future cash flows become less favorable with higher interest rates. In other words, the lower the discount rate, the more valuable future cash flows are in today's terms.

Growth Stocks vs. Value Stocks

Value stocks represent public companies that are perceived as undervalued based on their current business metrics. Conversely, growth stocks represent companies anticipated to provide above-average returns in the future.

While value stocks are generally seen as lower-risk, lower-volatility investments, growth stocks are riskier, with the potential for larger returns over time. Value stocks are considered undervalued at their current market prices, whereas growth stocks, although potentially overvalued at present, are expected to grow and surpass their current valuations.

Notably, value stocks tend to have appealing fundamental metrics such as low P/E and P/S ratios, are profitable, and often pay high dividend yields. In contrast, growth stocks usually feature relatively high P/E and P/S ratios, and many are unprofitable and do not pay dividends.

The 10 Unmissable Growth Stocks of July 2023

Here are the top 10 growth stocks of July 2023 with their 5-Year average EPS forecast

1. Planet Fitness (PLNT) +197.7%
2. ATI (ATI) +160.5%
3. T-Mobile US (TMUS) +65.5%
4. WillScot Mobile Mini (WSC) +51.6%
5. ACM Research (ACMR) +42.7%
6. Arcos Dorados (ARCO) +42.6%
7. Match Group (MTCH) +40.0%
8. Lamb Weston (LW) +37.1%
9. Lear (LEA) +36.5%
10. Delta Air Lines (DAL) +36.1%

• Planet Fitness, Inc. (PLNT)
  • Planet Fitness witnessed an impressive surge in earnings over the past year, with industry analysts projecting a doubling of profits annually for the next half-decade. Following a lull due to the Covid-19 pandemic, the company's sales have been on an upward trajectory since 2021.
• ATI Inc. (ATI)
  • ATI is a provider of specialty metals to diverse industries such as aerospace, defense, and oil and gas. The company faced challenging times in 2020 and 2021 with negative EPS, but bounced back in 2022, leading to a notable growth. Analysts foresee a prosperous 2023 for ATI, with earnings expected to more than double from 2022.
• T-Mobile US, Inc. (TMUS)
  • As a nationwide cellular service provider, T-Mobile has enjoyed escalating sales over the past ten years. The company is forecasted to continue this momentum with significant annual earnings growth over the next five years. For 2023, analysts project an incredible 300% increase in EPS year-over-year.
• WillScot Mobile Mini Holdings Corp. (WSC)
  • WillScot Mobile offers dynamic workspace and storage solutions, primarily generating its revenue via leasing agreements. The future looks bright for this company, with strong growth anticipated in the coming years, including an estimated 29.8% boost in EPS in 2024.
• ACM Research, Inc. (ACMR)
  • Specializing in cleaning equipment for the semiconductor industry, ACM Research plays a crucial role in ensuring the purity of microchips by eliminating contaminants. Coupled with an impressive recent sales growth and strong EPS gains, the company is projected to have robust EPS growth over the next five years, including 13.6% in 2024 and a whopping 50% in 2023.
• Arcos Dorados Holdings Inc. (ARCO)
  • As the operator of McDonald's restaurants in Latin America and the Caribbean, both company-owned and franchised, Arcos Dorados' earnings are set to rise steadily over the next five years, including a projected 17.7% increase in 2024.
• Match Group (MTCH)
  • Match Group, the company behind popular online dating sites and apps such as Tinder and Plenty of Fish, tends to experience cyclical earnings that increase for several years, followed by a decrease for a few years. Industry experts anticipate a growth phase, predicting considerable average yearly EPS growth over the next five years, with 2024 expected to witness a 21.6% growth.
• Lamb Weston Holdings, Inc. (LW)
  • Known for growing potatoes and converting them into a variety of frozen snacks, such as french fries and tater tots, Lamb Weston has seen its sales increase in recent years. After a significant earnings leap in 2022, which followed a dip in 2021, analysts predict another surge in 2023 and a 10.7% EPS increase in 2024.
• Lear Corporation (LEA)
  • Lear Corporation, a producer of electrical systems and seating for the automotive industry, has been diligently working to increase earnings following a downturn in EPS in 2020. The efforts seem to be paying off, with analysts predicting robust growth in 2023, a 40.1% growth in 2024, and continued growth over the next several years.
• Delta Air Lines (DAL)
  • Delta, a significant player in the cyclical airline industry, seems to be entering a growth phase, marking the first time it's increasing profits since the Covid-19 pandemic hit in 2020. Industry experts forecast robust earnings growth for the company over the coming years, including an 18.0% increase in 2024.

Conclusion

As you plan your investment strategy for the remainder of 2023 and beyond, these top 10 growth stocks provide ample opportunities for the savvy investor. However, as with any investment, it's important to remember that while the potential rewards are high, so too are the risks. Thorough research and a solid understanding of both the opportunities and challenges associated with growth investing are essential.